Credit Cards & Loans
Regulator warned to safeguard billions on gift cards
The regulator needs to do more to protect gift card customers’ cash from failing retailers, says a new report.
According to technology and payment specialist, Prepaid Financial Services, the vast majority of consumer money held on gift cards is not held in a separate account to the retailer’s own funds.
This means that should a company run into financial trouble the company’s administrators can refuse to refund customers – much like the 78,000 gift card holders of failed fashion chain Republic earlier this year.
The report said the Financial Conduct Authority (FCA) could force retailers to place consumer funds with over 30 regulated E-Money License Institutes (EMLIs) in the UK, thereby treating them as financial products under an EU e-money directive.
These EMLIs have the ability to separate consumer’s money from retailer’s funds by converting the former into ‘e-money’ and putting them in separate holding accounts valid under EU law.
Noel Moran, CEO of Prepaid Financial Services, said: “The UK is leading the charge on the creation of a secure e-money market, but the sector has failed to catch-on in any great way despite legislative support across the EU. This is regrettable as it allows retailers to regain consumer confidence on gift cards, while shoppers are assured their funds are secure.
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“This is why the regulator needs to speak up on behalf of consumers and protect their hard-earned money. Otherwise the status quo will remain, a form of monetary Wild West in which billions of pounds in public funds are at the mercy of an administrator with no protection whatsoever. We need to begin raising awareness of the ticking time-bomb here before it is too late.”
Moran added that regulation should also cover the creation of e-wallets – virtual wallets that allow consumers to make prepaid transactions with e-money, and which also allow retailers to create virtual gift cards.